In what is shaping up to be the slowest year for home sales in more than a decade, foreclosures and short sales accounted for 30% of all homes sold last month. According to a report released today by the National Association of Realtors, sales of existing homes fell in June for the third consecutive month. At the current rate of home sales, 4.77 million homes will be sold this year, the lowest number since 1997, and a sharp drop from last year’s total of 4.91 million homes.
Purchase Contracts Falling Apart
A big factor partially respponsible for June’s weak sales figures is an unusually hign number of purchase contracts being cancelled prior to the close of the transaction. Tighter credit restrictions and insufficient appraisals are two of the main reasons for last month’s surge in transaction cancellations. Lartger down payment requirements and the lower lending limits scheduled to take effect this fall are likely to mean a continuation of this trend in the near term.
Shadow Inventory of Distressed Properties
The glut of foreclosures, short sales, and bank-owned properties on the market continues to depress property valuations across all listing types, and presents a challenge to home appraisers when estimating home values. By some estimates as many as three million distressed homes are being held up in the foreclosure process. This “shadow inventory” of foreclosures expected to hit the market later this year is adding to the unease buyers and lenders are currently experiencing, contributing to the slow pace of sales activity.
All-cash transactions accounted for 29 percent of home sales in June, signalling that investors, on the other hand, are not especially concerned with the soft market conditions and are actively snapping up distressed properties without the aid of traditional home loan instruments. While many foreclosure flippers are turning around and selling these homes right away at a handsome profit, the majority of these real estate investors are choosing to hang on to their properties, generate residential income revenue, and wait for the inevitable rebound in housing prices as the economy picks up steam.
